AstraZeneca Annual Report and Form 20-F Information 2011

RiskManagement reporting and assuranceWe provide regular quarterly risk reports to the SET and to the Board.Among other things, these summarise our current assessment of theprincipal risks facing the Group, including environmental, social andgovernance risks, senior management accountability and ourexpected plans in order to address these risks, to the extent possible.The Audit Committee is comprised of five Non-Executive Directorsand is accountable, among other things, for assessing the adequacyand effectiveness of the risk management systems and processesimplemented by management. The Audit Committee receives regularreports from our external auditor and the following business functions:> GIA – independent assurance reports on the Group’s riskmanagement and control framework.> Global Compliance – compliance programme reports on keycompliance risks, updates on key compliance initiatives,performance against the Global Compliance scorecard, complianceincidents and investigations including calls made by employees tothe AZethics and our biologics capabilities help-lines.> Financial Control and Compliance Group – reports on Sarbanes-Oxley Act compliance and the financial control framework.> Management – the Group level risk summary from the annualbusiness planning process and QBRs and reports on theperformance management and monitoring processes.The Audit Committee reviews and reports to the Board followingeach Audit Committee meeting on the overall framework of riskmanagement and internal controls and is responsible for promptlybringing to the Board’s attention any significant concerns about theconduct, results or outcome of internal audits and other compliancematters. For further information on the Audit Committee, see the AuditCommittee section from page 107.GIA is an independent assurance and advisory function that reportsto, and is accountable to, the Audit Committee. GIA’s budget,resources and programme of audits are approved by the AuditCommittee annually and the findings from its audit work are reportedto, and discussed at, each Audit Committee meeting. A core part ofthe audit work carried out by GIA includes assessing how we aremanaging risk and reviewing the effectiveness of selected aspectsof our risk control framework, including the effectiveness of otherassurance and compliance functions within the business.Principal risks and uncertaintiesThe pharmaceutical sector is inherently risky and a variety of risks anduncertainties may affect our business. Below we describe the principalrisks and uncertainties which we consider to be material to ourbusiness in that they may have a significant effect on our financialcondition, results of operations and/or reputation.These risks are not listed in any particular order of priority. Other risks,unknown or not currently considered material, could have a similareffect. We believe that the forward-looking statements aboutAstraZeneca in this Annual Report, identified by words such as‘anticipates’, ‘believes’, ‘expects’ and ‘intends’, are based onreasonable assumptions. However, forward-looking statementsinvolve inherent risks and uncertainties such as those summarisedbelow. They relate to events that may occur in the future, that may beinfluenced by factors beyond our control and that may have actualoutcomes materially different from our expectations.Product pipeline risksFailure to meet development targetsThe development of any pharmaceutical product candidate is a complex, risky and lengthyprocess involving significant financial, R&D and other resources, which may fail at any stage ofthe process due to a number of factors. These include: failure to obtain the required regulatoryor marketing approvals for the product candidate or its manufacturing facilities; unfavourableclinical efficacy data; safety concerns; failure of R&D to develop new product candidates; andfailure to demonstrate adequate cost effective benefits to regulators and the emergence ofcompeting products.Production and release schedules for biologics may be more significantly impacted byregulatory processes than other products. This is due to more complex and stringent regulationon the manufacturing of biologics and their supply chain.Difficulties of obtaining and maintaining regulatory approvalsfor new productsWe are subject to strict controls on the commercialisation processes for our pharmaceuticalproducts, including in their development, manufacture, distribution and marketing. Therequirements to obtain regulatory approval based on a product’s safety, efficacy and qualitybefore it can be marketed for an indication in a particular country, as well as to maintain andcomply with licences and other regulations relating to its manufacture and marketing, areparticularly important. The submission of an application to regulatory authorities (which vary,with different requirements, in each region or country) may or may not lead to the grant ofmarketing approval. Regulators can refuse to grant approval or may require additional databefore approval is given, even though the medicine may already be launched in other countries.The approval of a product is required by the relevant regulatory authority in each country,although a single pan-EU MAA can be obtained through a centralised procedure.In recent years, companies sponsoring new drug applications and regulatory authorities havebeen under increased public pressure to apply more conservative benefit/risk criteria. In someinstances, regulatory authorities require a company to develop plans to ensure safe use of amarketed product before a pharmaceutical product is approved, or after approval, if a new andsignificant safety issue is established. In addition, third party interpretation of publicly availabledata on our marketed products has the potential to influence the approval status or labelling ofa currently approved and marketed product.ImpactA succession of negative drug project results anda failure to reduce development timelines effectivelyor produce new products that achieve commercialsuccess could adversely affect the reputationof our R&D capabilities and is likely to materiallyadversely affect our financial condition and resultsof operations.ImpactThe predictability of the outcome and timing ofreview processes remains challenging, particularlyin the US, due to competing regulatory priorities anda continuing sentiment of risk aversion on the part ofregulatory reviewers and management.Delays in regulatory reviews and approvals couldimpact the timing of a new product launch. Inaddition, the drive for public transparency of thereview processes through the more extensiveuse of public advisory committees increases theunpredictability of the process. For example, in theUS, the approval date for Brilinta was delayed inDecember 2010 by the issuance of a CompleteResponse Letter by the FDA requesting further dataand analysis, which led to the product ultimatelyreceiving US approval in the third quarter of 2011.130 RiskAstraZeneca Annual Report and Form 20-F Information 2011